Chancellor’s Budget surprises to please voters

Chancellor George Osborne froze whisky duty, which will please the industry in Scotland. Picture: Neil Hanna

BILL JAMIESON

OSBORNE’S politically-calculated offering brings a glimpse of happier times after the gloom of previous years, writes Bill Jamieson

For all the earnest talking down of Budget expectations, it hardly seemed worthwhile showing up for the big day. But George Osborne not only brought out some big surprises but also delivered a Budget that in many respects defined his ­chancellorship.

It was as significant for the political calculation behind it as for the confirmation from the Office of Budget Responsibility (OBR) of further upgrades to its growth forecasts for this year.

With next year’s appointment with the voters clearly in mind, the Chancellor could fairly be said to have resorted to the old nursery rhyme advice about weddings: “Something old, something new, something borrowed, something blue.”

The old proverb also adds the line, “and a silver sixpence in her shoe”.

There’s no silver sixpence – but he unveiled a new one pound coin which looks remarkably like the old threepenny bit – an unintended reminder, perhaps, of what inflation can do to the spending power of money.

There’s still plenty of borrowing behind this year’s Budget presentation. But there’s also much that is blue to rally heartland Conservative voters – in particular, the substantial increase in the maximum that can be put into a tax-sheltered individual savings account (Isa) and the major simplification both of Isa and of pension savings.

For a moment, it was possible to feel almost grateful to the Chancellor – but only for a ­moment. For the past five years savers and pensioners have taken a terrific battering, helpless against the deadly combination of ultra-low rates of interest on savings accounts and inflation which tore into the spending power of money put aside for retirement.

Here was a constant plunder of the prudent. The wonder is not that the household savings ratio has fallen in recent years but that people troubled to save at all. And it has angered many that the income from savings accumulated out of already taxed income should be further ­attacked by the taxman. The raising of the Isa ceiling while welcome is chronically overdue.

As for Osborne’s business constituency, the help for investment and exports is thoroughly in line with that business lobbies were calling for.

The confirmation of further progress – albeit four years behind schedule – in turning the Budget deficit into surplus should allay residual fears of further new taxes to deal with the gap between government spending and revenue.

On the key figures for government spending and borrowing, he said the deficit this year would be £12 billion lower than previously forecast at £108 billion or 6.6 per cent of GDP. And the government was on track to post a surplus in 2018-19.

Pleasing though that prospect is (at last), it is not in his gift to deliver, as this sunny upland is more than three years beyond the next General Election. Such long-range forecasts, as we recall from the Brown era, are highly perishable and vulnerable to events. And the £108bn deficit still represents a massive gap between what the government raises in tax and what it spends.

And remember that the deficit is only the amount by which borrowing rises each year. As for overall Public Sector Net Debt, the Chancellor made much of the forecast that this will now peak a year earlier than previously expected at “just” 78.7 per cent of GDP in 2015-16.

In fact, the debt figure in 2014-15 will hit £1.35 trillion and this figure will keep rising well after 2015-16 to hit £1.55tn in 2018-19. Heaven help us if there’s any unexpected bump in the road between now and then.

But gone for now were those earnest admonitions in his earlier budgets for more sacrifice and warnings of tough times ahead. Instead, we were given a glimpse of the sunny uplands – and a fair scattering of populist measures – the raising of the personal tax free allowance from £10,000 to £10,500, lifting three million out of tax; a freeze on whisky duty which will please the industry in Scotland; an additional £140 million for flood repairs and £200m for fixing those wretched potholes, the cancellation of the planned fuel duty increase, a penny off beer duty, and (chancellors can never stoop too low for headlines) a cut in bingo tax from 20 per cent to 10 per cent.

We have come a long way from Osborne’s first Budget of 2010 when the sky was black and we were braced for the worst.

The recovery from recession has been long in coming. But now we have a further rise in the OBR forecast to growth of 2.7 per cent this year – far higher than most had dared to hope just a year ago.

None of this can be taken for granted. And to address concerns about “an unbalanced recovery” the Chancellor announced a clutch of specific measures designed to broaden the upturn. For exporters, the doubling of the amount of ­finance available to £3bn, together with lower borrowing rates, will be welcome news.

For business, the investment allowance which can be offset against tax is to be doubled to £500,000 and extended to 2015. Manufacturers who are heavy energy users will get substantial reductions in their energy bills. Small house-builders stand to get a £500m package of help. There will be extended grants for 100,000 new apprenticeships and enterprise zones get a three year extension. That ticks most of the “would like” items on the business list.

For the North Sea oil industry, the Budget news was more mixed. The Chancellor re-iterated the commitment to an oil tax review. This came with a new OBR forecast that £3.2bn would be generated for the UK in tax receipts in 2016-17 – the first year of a mooted independent ­Scotland.

This compares with a Scottish Government “most pessimistic” estimate in its white paper of £6.8bn. The OBR projection was used by the Chancellor yesterday to underline his warnings of how vulnerable an independent Scotland would be to oil price and production fluctuations. That brought derision and gestures of dismissal from the SNP benches.

But it was the raft of unexpected changes on Isas and pension savings, together with the announcement of a million new “pensioner bonds” offering higher rates of interest of up to 4 per cent that grabbed most ­attention and which will mark out his Budget for years to come.

Fiddling around with “cash Isas and “equity Isas” is now banished at last with the introduction of one new and substantially enlarged single Isa pot. Backbenchers grumbling about the measly increase in the threshold for higher rate tax have cause for quiet reflection.

The pension simplification should prove a boon for Scotland’s fund management sector and the enhanced appeal of pension saving with access to larger tax-free lump sums and an escape from low interest rate annuities should help the likes of Standard Life and Scottish Widows in their pensions marketing and sales.

But a major caveat should be entered – people are living longer, and the new proposals for much easier access to pension pots may encourage pensioners to splurge the money in the early years of retirement leaving them dependent on the state in later years.

Splurging all the money too early? Going for broke? Leaving ourselves defenceless? With a £1.3tn debt pile to concentrate minds, governments would never ever do that, would they?

This website and its associated newspaper adheres to the Independent Press Standards Organisation's Editors' Code of Practice.
If you have a complaint about editorial content which relates to inaccuracy or intrusion, then contact the
Editor by clicking here.

If you remain dissatisfied with the response provided then you can contact the IPSO by
clicking here.

The Scotsman provides news, events and sport features from the Edinburgh area. For the best up to date information relating to Edinburgh and the surrounding areas visit us at The Scotsman regularly or bookmark this page.

For you to enjoy all the features of this website The Scotsman requires permission to use cookies.

Find Out More ▼

What is a Cookie?

What is a Flash Cookie?

Can I opt out of receiving Cookies?

About our Cookies

Cookies are small data files which are sent to your browser (Internet Explorer, Firefox, Chrome etc) from a website you visit. They are stored on your electronic device.

This is a type of cookie which is collected by Adobe Flash media player (it is also called a Local Shared Object) - a piece of software you may already have on your electronic device to help you watch online videos and listen to podcasts.

Yes there are a number of options available, you can set your browser either to reject all cookies, to allow only "trusted" sites to set them, or to only accept them from the site you are currently on.

However, please note - if you block/delete all cookies, some features of our websites, such as remembering your login details, or the site branding for your local newspaper may not function as a result.

The types of cookies we, our ad network and technology partners use are listed below:

Revenue Science ►

A tool used by some of our advertisers to target adverts to you based on pages you have visited in the past. To opt out of this type of targeting you can visit the 'Your Online Choices' website by clicking here.

Google Ads ►

Our sites contain advertising from Google; these use cookies to ensure you get adverts relevant to you. You can tailor the type of ads you receive by visiting here or to opt out of this type of targeting you can visit the 'Your Online Choices' website by clicking here.

Digital Analytics ►

This is used to help us identify unique visitors to our websites. This data is anonymous and we cannot use this to uniquely identify individuals and their usage of the sites.

Dart for Publishers ►

This comes from our ad serving technology and is used to track how many times you have seen a particular ad on our sites, so that you don't just see one advert but an even spread. This information is not used by us for any other type of audience recording or monitoring.

ComScore ►

ComScore monitor and externally verify our site traffic data for use within the advertising industry. Any data collected is anonymous statistical data and cannot be traced back to an individual.

Local Targeting ►

Our Classified websites (Photos, Motors, Jobs and Property Today) use cookies to ensure you get the correct local newspaper branding and content when you visit them. These cookies store no personally identifiable information.

Grapeshot ►

We use Grapeshot as a contextual targeting technology, allowing us to create custom groups of stories outside out of our usual site navigation. Grapeshot stores the categories of story you have been exposed to. Their privacy policy and opt out option can be accessed here.

Subscriptions Online ►

Our partner for Newspaper subscriptions online stores data from the forms you complete in these to increase the usability of the site and enhance user experience.

Add This ►

Add This provides the social networking widget found in many of our pages. This widget gives you the tools to bookmark our websites, blog, share, tweet and email our content to a friend.